City ri­val­ries are an en­gine for devel­op­ment

China Daily (Canada) - - VIEWS -

Over the past five years, the coun­try’s north­east­ern re­gion — home to in­dus­tries such as oil re­fin­ing and steel­mak­ing – has been fac­ing an ac­cel­er­at­ing de­cline, as have the coun­try’s rich min­eral re­source ar­eas such as He­bei prov­ince and the In­ner Mon­go­lia au­ton­o­mous re­gion. China’s tra­di­tional in­dus­tries are suf­fer­ing, and as a re­sult, over the last decade, the pop­u­la­tions of about one-third of China’s 600 cities have de­clined. Thus the prospects for dis­persed pop­u­la­tions away from China’s megac­i­ties have di­min­ished. But all these are ac­tu­ally a re­sult of what is widely con­sid­ered very good news: China’s eco­nomic trans­for­ma­tion is pro­gress­ing.

In re­cent years, China’s econ­omy has be­come in­creas­ingly re­liant on new tech­nol­ogy and mod­ern ser­vice in­dus­tries, in­clud­ing the mo­bile in­ter­net, ar­ti­fi­cial in­tel­li­gence, smart cars, drones, ro­bots, vir­tual re­al­ity, wear­able de­vices, green tech­nol­ogy, and more. This has led to jobs and growth be­com­ing in­creas­ingly con­cen­trated in some high-pro­duc­tiv­ity megac­i­ties, mak­ing them mag­nets for skilled la­bor and ven­ture cap­i­tal.

The rapid growth of China’s high-tech in­dus­tries was thrown into sharp re­lief ear­lier this month at the an­nual Con­sumer Elec­tron­ics Show in Las Ve­gas, Ne­vada, where Chi­nese firms ac­counted for 40 per­cent of all ex­hibitors — a fig­ure that would have been un­think­able just five years ago. Many of those firms are from Shen­zhen, China’s first spe­cial eco­nomic zone and now the coun­try’s lead­ing tech­nol­ogy cen­ter.

But Shen­zhen is not alone. Sev­eral other Chi­nese cities — for ex­am­ple, Bei­jing, Shang­hai, Guangzhou, Chengdu, and Xi’an — are also work­ing to foster cut­ting-edge in­dus­tries. In fact, these cities’ com­pe­ti­tion to gen­er­ate stronger growth than their coun­ter­parts — a con­test sus­tained by the politi­cal in­cen­tives the cen­tral gov­ern­ment has long pro­vided to lo­cal of­fi­cials — has played a driv­ing role in China’s rapid in­dus­tri­al­iza­tion and on­go­ing struc­tural trans­for­ma­tion.

Over the short term, it is dif­fi­cult to as­sess pre­cisely the role of in­ter-ur­ban com­pe­ti­tion in pro­mot­ing the devel­op­ment of China’s high-tech in­dus­tries, although there are un­doubt­edly some neg­a­tive ef­fects. But, over the long term, the out­comes of such hor­i­zon­tal com­pe­ti­tion are gen­er­ally pos­i­tive, ow­ing to the in­cen­tives it cre­ates for lo­cal gov­ern­ment of­fi­cials to think cre­atively, ex­per­i­ment ef­fec­tively, and pur­sue for­ward-look­ing poli­cies.

In­deed, stud­ies car­ried out by econ­o­mists, in­clud­ing me, have shown that com­pe­ti­tion among lo­cal gov­ern­ments made a ma­jor con­tri­bu­tion to the rapid in­dus­tri­al­iza­tion that China ex­pe­ri­enced in the 1990s. A key rea­son for this was that land — which played an im­por­tant role in early in­dus­tri­al­iza­tion — is owned and man­aged largely by lo­cal gov­ern­ments in China. So Chi­nese county gov­ern­ments used land as lever­age in or­der to at­tract for­eign di­rect in­vest­ment, par­tic­u­larly in the Pearl River Delta and the Yangtze River Delta in the 1980s and 1990s.

Over the last decade, such com­pe­ti­tion has per­sisted, but has in­creas­ingly been led by ma­jor cities. Ris­ing wages and sharply de­clin­ing re­turns to cap­i­tal in tra­di­tional in­dus­trial sec­tors have un­der­scored the need to ac­cel­er­ate mod­ern­iza­tion — an im­per­a­tive that has been re­flected con­sis­tently in the cen­tral gov­ern­ment’s re­form strate­gies. So China’s ma­jor cities have been fos­ter­ing in­no­va­tive and high-tech in­dus­tries and mod­ern ser­vices in the new econ­omy.

One of China’s pre­mier megac­i­ties has long been Shang­hai. But, in re­cent years, Shen­zhen has be­come a tech hub, and Hangzhou, where Alibaba is based, is a ris­ing star in the dig­i­tal econ­omy.

Shen­zhen’s GDP reached some 2.2 tril­lion ($343 bil­lion) yuan in 2017, higher than that of Hong Kong and Guangzhou, and was sur­passed only by Shang­hai and Bei­jing. Now, of­fi­cials in Shang­hai and Guangzhou, the cap­i­tal of Guang­dong prov­ince where Shen­zhen is lo­cated, have added mo­ti­va­tion to pur­sue new growth and pro­duc­tiv­ity-en­hanc­ing poli­cies, in­clud­ing up­graded ini­tia­tives to at­tract en­trepreneur­ship and hu­man cap­i­tal.

China’s ma­jor cities have cre­ated and im­ple­mented pol­icy pack­ages aimed at sup­port­ing in­no­va­tive start-ups, as well as a se­ries of mea­sures to at­tract tal­ent, in­clud­ing in­di­vid­ual tax in­cen­tives, home-pur­chase sub­si­dies, and at­trac­tive health­care and ed­u­ca­tion ben­e­fits. The lead­ers of sev­eral big cities, in­clud­ing Shang­hai, have lately called for a stronger com­mit­ment to such poli­cies and for them to be in­cor­po­rated into broader ef­forts to im­prove the lo­cal busi­ness en­vi­ron­ment. Such com­pre­hen­sive strate­gies have en­hanced fur­ther the role of China’s ma­jor cities in ad­vanc­ing struc­tural change, and con­trib­uted to ma­jor shifts in the sources of eco­nomic dy­namism of China.

Of course, such com­pe­ti­tion car­ries risks — in par­tic­u­lar, short-sighted ef­forts to boost growth in ways that ex­ac­er­bate mis­al­lo­ca­tion of re­sources, over­ca­pac­ity and high fi­nan­cial lever­age. But Bei­jing mu­nic­i­pal gov­ern­ment, for one, is at­tempt­ing to mit­i­gate these risks, by shift­ing its fo­cus from en­cour­ag­ing the high­est pos­si­ble growth rate to en­sur­ing higher-qual­ity growth. In most cases, sus­tain­able growth will arise from ma­jor cities’ pur­suit of high-tech and mod­ern ser­vice in­dus­tries.

China’s cities re­main vi­tal sources of eco­nomic growth for the coun­try. While some will un­doubt­edly strug­gle, oth­ers will serve as crit­i­cal en­gines of China’s eco­nomic trans­for­ma­tion, fu­el­ing dy­namism across the en­tire global econ­omy.

The author is dean of the School of Eco­nom­ics at Fu­dan Univer­sity and di­rec­tor of the China Cen­ter for Eco­nomic Stud­ies, a Shang­hai-based think tank. Pro­ject Syn­di­cate


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